UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _____________________
Commission File No. 0-12116
ComTec International, Inc.
(Name of Small Business Issuer in its charter)
New Mexico 75-2456757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
9350 East Arapahoe Road, Suite 340, Englewood, Co. 80112
(Address of principal executive offices)
(303) 662-1198
(Issuer's Telephone Number Including Area Code)
Common Stock, $.001 par value
-----------------------------
(Title of Class)
__________________________________________________
(former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No x
---- ----
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes x No
---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date:
As of July 20, 1999, 46,070,019 shares of Common Stock ($.001 par value)
were outstanding
Transitional Small Business Disclosure Format (check one):
Yes No x
---- ----
<PAGE>
TABLE OF CONTENTS
FORM 10-QSB REPORT - FOR QUARTER ENDED DECEMBER 31, 1998
ComTec International, Inc.
PART I
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998 (unaudited) and June 30, 1997 (audited) 3
Condensed Consolidated Statements of Operations 4
Six Months ended December 31, 1998 and 1997
and from inception (unaudited)
Condensed Consolidated Statements of Operations 5
Three Months ended December 31, 1998 and 1997
and from inception (unaudited)
Condensed Consolidated Statements of Cash Flows 6
Six Months ended December 31, 1998 and 1997
and from inception (unaudited)
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8
PART II
Item 1. Legal Proceedings 11
Item 2. Change in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE PAGE 14
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PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Balance Sheets
<CAPTION>
December 31, 1998 June 30, 1998
(unaudited) (audited)
------------ ------------
<S> <C> <C>
Assets
Current Assets
Cash and equivalents
(includes restricted funds
of $500,000) $ 480,413 $ 667,800
Accounts Receivable, less allowance
For doubtful collections of $28,900 81,124 13,500
LED Equipment held for resale 1,314,272 1,324,300
Other current assets -- 45,000
------------ ------------
Total Current Assets 1,875,809 2,050,600
Property and Equipment, net 1,356,622 1,478,600
License Rights 1,390,700 1,390,700
Other Assets 5,671 5,700
------------ ------------
Total Assets $ 4,628,802 $ 4,925,600
============ ============
LIABILITIES
Current Liabilities
Current Portion of Long Term Debt 99,813 13,400
Accounts Payable 16,014 254,400
Notes Payable 1,581,820 1,184,200
Accrued Liabilities 606,614 399,700
------------ ------------
Total Current Liabilities 2,304,261 1,851,700
------------ ------------
Long Term Debt, less current portion 1,442,344 1,432,900
------------ ------------
STOCKHOLDER'S EQUITY
Common Stock, .001 par value;
Authorized 100,000,000 shares;
39,697,196 and shares issued
June 30, 1998 and December 31, 1998 44,313 39,700
Capital in Excess of Par 13,321,974 13,326,600
Deficit accumulated during the
development stage (12,484,090) (11,725,300)
------------ ------------
882,197 1,641,000
------------ ------------
Total Liabilities and Stockholders Equity $ 4,628,802 $ 4,925,600
============ ============
</TABLE>
3
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<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Statements of Operations
<CAPTION>
For the Six Months Ended
December December
31, 1998 31, 1997 Cumulative
(unaudited) (unaudited) Amounts from
Inception
(unaudited)
---------- ---------- -----------
<S> <C> <C> <C>
Revenues
Sales $ 135,594 $ 19,295 $ 135,594
Cost of Sales 105,290 30,775 105,290
---------- ---------- -----------
Gross Profit 30,304 (11,480) 30,304
Expenses
Selling, General and Administrative 331,462 505,050 3,555,262
Compensation in the form of common stock -- -- 3,655,000
Management fees- related party -- -- 65,000
---------- ---------- -----------
Loss before other income (expense) (301,158) (516,530) (7,275,262)
---------- ---------- -----------
Other Income (expense)
Interest and Dividend Income 13,490 1,066 47,490
Interest expense (125,502) 6,500 (997,502)
Rental and Other Income (24,370) 13,933 153,930
Loan Origination Fees (292,308) -- (292,308)
Prepaid Calling Card services, less revenues -- (58,783) (575,800)
Loss on investments, foreclosures and disposals (28,927) 23,471 (880,227)
Write-down of intangible -- -- (2,674,300)
---------- ---------- -----------
Total Other Income (Expense) (457,617) (13,813) (5,218,717)
---------- ---------- -----------
Net Loss (758,775) (530,343) (12,463,675)
========== ========== ===========
Weighted Average Common Shares Outstanding 39,697,196 8,857,079 8,866,064
========== ========== ===========
Net Loss per Common Share (0.02) (0.06) (1.41)
========== ========== ===========
</TABLE>
4
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<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Statements of Operations
<CAPTION>
For the Three Months Ended
December December
31, 1997 31, 1996
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Revenues
Sales $ 54,640 $ 19,295
Cost of Sales 31,402 30,775
Gross Profit 23,238 (11,480)
----------- -----------
Expenses
Selling, General and Administrative 163,476 219,523
Compensation in the form of common stock -- --
Management fees- related party -- --
----------- -----------
Loss before other income (expense) (140,238) (231,003)
----------- -----------
Other Income (expense)
Interest and Dividend Income 12,593 1,767
Interest expense (74,571) --
Rental and Other Income (24,370) 13,933
Loan Origination Fees (38,462) --
Prepaid Calling Card services, less revenues -- (52,878)
Loss on investments, foreclosures and disposals (72,854) --
Write-down of intangible
----------- -----------
Total Other Income (Expense) (197,664) (37,178)
----------- -----------
Net Loss (337,902) (268,181)
=========== ===========
Weighted Average Common Shares Outstanding 39,697,196 8,857,079
=========== ===========
Net Loss per Common Share (0.01) (0.03)
=========== ===========
</TABLE>
5
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<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
<CAPTION>
For the Six Months Ended
December December
31, 1998 31, 1997 Cumulative
(unaudited) (unaudited) Amounts from
inception
(unaudited)
---------- ---------- ------------
<S> <C> <C> <C>
Operating activities:
Net Loss $ (758,775) $ (530,343) $(12,463,675)
---------- ---------- ------------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation expense 107,369 22,087 370,569
Services and Interest exchanged for stock -- -- 3,304,200
Gain on Sale of Marketable Securities -- -- (10,000)
Write Down of Intangible -- -- 2,674,300
Losses on investments, foreclosure and disposal 28,927 (23,471) 706,127
Changes in assets and liabilities:
Accounts receivable (67,624) 31,148 (106,424)
Deposits and other 45,000 (16,806) 42,500
(Increase) decrease in other current assets 4,357 (22,671) (29,543)
Increase (decrease) in account payable & liabilities 3,359 (71,635) 1,399,959
Other Assets -- -- 40,000
---------- ---------- ------------
Net cash used in operating activities (637,387) (611,691) (4,071,987)
---------- ---------- ------------
Investing activities:
Proceeds from sale of marketable securities -- -- 267,500
Proceeds from acquisition -- -- 22,100
License rights - Centennial SMR assets -- (3,035,697) (424,300)
Marketable securities -- 248,400 (255,600)
Non-Operating assets -- -- (25,000)
Related Party -- 40,000 (39,000)
Purchase of property, plant and equipment -- -- (1,699,800)
Other -- 7,668 (85,200)
---------- ---------- ------------
Net cash used in investing activities -- (2,739,629) (2,239,300)
---------- ---------- ------------
Financing activities:
Advances from related party -- -- 184,500
Proceeds: private place of common stock -- -- 1,138,900
Proceeds: short term notes 450,000 364,147 1,745,100
Warrants -- -- 30,000
Convertible Debentures -- 1,600,000 4,100,000
Payments on notes payable -- -- (397,800)
Long-term notes payable -- 1,390,707 (9,000)
---------- ---------- ------------
Net cash provided by financing activities 450,000 3,354,854 6,791,700
---------- ---------- ------------
Increase (Decrease) in cash (187,387) 3,534 480,413
Beginning cash balance 667,800 630,000 --
---------- ---------- ------------
Ending cash balance 480,413 633,534 480,413
========== ========== ============
</TABLE>
6
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ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Notes to the Consolidated Financial Statements
Note 1.
a) The summary of the Issuer's significant accounting policies are incorporated
by reference to the Company's SEC Form 10-KSB as of June 30, 1997. The notes to
the audited financial statements presented with the Company's SEC Form 10-KSB as
of June 30, 1998 are an integral part of the audited balance sheet data
presented herein.
b) The accompanying unaudited condensed financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of operations, financial position and cash flows.
The results of the interim period are not necessarily indicative of the results
for the full year.
Note 2.
On March 28, 1997 the Shareholders of the Company approved a proposal to give
the Company's Board of Directors authority to institute a reverse stock split of
from 3 for 1 to 100 for 1 at the discretion of the Board of Directors until
December 31, 1997. On December 26, 1997 the Board of Directors of the Company
acted pursuant to shareholder authority granted at the Annual Meeting of
Shareholders held March 28th, 1997, to declare a one for five reverse stock
split of the Company's .001 par value common stock effective 12:01 A.M. January
31st, 1998. All share data and per share data is stated to reflect the reverse
stock split.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
ComTec international Inc. was incorporated on July 6, 1983 in the State of
New Mexico, originally under the name of Nisus Video, Inc. The Company has
undergone many changes to date as a result of certain reorganizations and recent
change of management. Historical changes are more fully disclosed in prior 34
Act filings and the most recent changes, including changes in management are
described in the Company's 10-KSB for the year ended June 30, 1998. The Company
is currently authorized to issue 100,000,000 common shares, $0.001 par value and
10,000,000 preferred shares, $0.001 par value. The Company has one wholly owned
operating subsidiary, American Wireless Network, Inc. ("AWN") and three inactive
subsidiaries.
American Wireless Network, Inc. ("AWN") a wholly owned subsidiary of the
Company was incorporated under the laws of the State of Colorado on December 3,
1996, to act as the wireless communications operating entity for the Company.
The Company's wireless specialized mobile radio "SMR" operations are conducted
through AWN.
During the fiscal year ended June 30, 1998 and through the present, the
Company continued as a developmental stage entity focused on managing its
wireless specialized mobile radio "SMR" business plan. Prior to December, 1997
activities had been concentrated on creating and executing the Company's
strategic business plan, raising private financing, efforts to acquire other
entities and operations, developing a management and support staff to execute
its business plan, and maintaining reporting compliance for various federal
government agencies, such as the SEC and FCC. On December 5, 1997 AWN completed
the initial phase of a purchase agreement and on July 6, 1998 completed the
terms of an agreement whereby AWN purchased seven operating SMR systems for
$3,035,700. The wireless communications assets and associated business acquired
from Centennial Communications Corp. lay within the following seven MTA's:
Birmingham, Alabama; Knoxville, Tennessee; Memphis, Tennessee; Nashville,
Tennessee; New Orleans, Louisiana; Oklahoma City, Oklahoma; Tulsa, Oklahoma.
During the quarter ended December 31, 1998 AWN operated the seven SMR
communications systems from its office in Englewood, Colorado.
(a) Plan of Operation:
FORWARD-LOOKING STATEMENTS
The securities of the Company are speculative and involve a high degree of
risk, including, but not necessarily limited to, the factors affecting operating
results described in the Form 10KSB for the year ended June 30, 1998 and other
filings with the SEC. The statements which are not historical facts contained in
this report, including statements containing words such as "believes,"
"expects," "intends," "estimates," "anticipates," or similar expressions, are
"forward looking statements" (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risks and uncertainties.
The foregoing and subsequent discussion contains certain forward-looking
statements within the meaning of Section 27A of the Securities A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
which are intended to be covered by the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the possible
further capitalization and future acquisitions of telecommunication, computer
related or other cash flow business. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Form 10- QSB will prove to be accurate. In light of
the significant uncertainties inherent in the
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<PAGE>
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
Since May 10, 1995, the Company's strategic business plan has, aside from
terminated venture in the LED screens and the divested TTI prepaid phone card
investment, been concentrated on wireless telecommunications. Currently, the
Company's only business is the recently commenced operation of basic two-way
communications services. The Company has been and continues to be in the
development stage. The Company remains in the development stage and from
inception (March 15, 1994) has only generated auxiliary revenues to defray the
cost of its planned operations, with only limited success in implementing actual
operations. The Company has financed its operations during the development stage
from the sale of its common stock and from issuance of short and long-term debt.
During the quarter ended December 31, 1998 and through the present the
Company continued as a developmental stage entity focused on developing its
wireless SMR business plan. During the quarter ended December 31, 1998,
activities consisted of operating the SMR systems, control of which was acquired
in December, 1997, developing alternative strategic plans, efforts to acquire
financing, developing a management plan and maintaining reporting compliance for
various federal government agencies, such as the SEC and FCC.
Current Status and Operations
During the fiscal year ended June 30, 1998 and through May of 1999, the
Company continued as a developmental stage entity focused on managing its
wireless specialized mobile radio "SMR" business plan. Prior to December, 1997
activities had been concentrated on creating and executing the Company's
strategic business plan, raising private financing, efforts to acquire other
entities and operations, developing a management and support staff to execute
its business plan, and maintaining reporting compliance for various federal
government agencies, such as the SEC and FCC. On December 5, 1997 AWN completed
the initial phase of a purchase agreement whereby AWN purchased seven operating
SMR systems for $3,035,700. The wireless communications assets and associated
business acquired from Centennial Communications Corp. lay within the following
seven MTA's: Birmingham, Alabama; Knoxville, Tennessee; Memphis, Tennessee;
Nashville, Tennessee; New Orleans, Louisiana; Oklahoma City, Oklahoma; Tulsa,
Oklahoma. During the quarter ended December 31, 1998 AWN operated the seven SMR
communications systems from its office in Englewood, Colorado. AWN's SMR
communication services were sold to individual customers through an independent
dealer network of local two-way radio communications equipment vendors
("Dealers"). The Dealers maintain the local relationships with the customers.
AWN acts as the direct billing provider of SMR communications to the customer
base provided by the Dealers. AWN is responsible for local telephone lines,
equipment maintenance, tower site rentals, customer loading, coding and billing
and all customer service and financial relationships. AWN also has all
responsibility for maintaining its SMR licenses, making payments to the FCC on
its licenses and funding all equipment additions and system improvements.
Expenses of operating the system significantly exceed revenues from the systems
during the quarter ended December 31, 1998 and preceding periods.
On April 15, 1999, and as amended on July 14, 1999, AWN executed an Asset
Acquisition Agreement with CMRS Systems, Inc. an unaffiliated corporate entity.
The purpose of the Asset Acquisition Agreement is to facilitate the future sale
by American Wireless Network, Inc. to CMRS Systems, Inc. of specifically
identified 900 MHz Licenses and American Wireless Network, Inc.'s customer base
and customer lists associated with the specified 900 MHz licenses. The sale and
an associated lease of SMR related equipment owned by AWN, is subject to certain
conditions and events, including final and unappealable regulatory approvals
relating to the transfer of the licenses to the Buyer. In consideration for the
sale, the Buyer is to assume approximately $1,400,000 of American Wireless
Network, Inc.'s debt to the Federal Communications Commission related to the
licenses. AWN will retain a seven and one half percent interest in the specific
operating assets sold to CMRS Systems, Inc. which assets will be operated
through a division of CMRS Systems, Inc. to be known as the S.E. 900 Division.
During the pendancy of the license transfer application, Effective June 1, 1999,
CMRS will operate the SMR systems under a management agreement. As an additional
provision of the agreement, CMRS Systems, Inc. and AWN entered into a five year
lease agreement whereby AWN will lease SMR related equipment to CMRS Systems,
Inc.
New Funding Efforts:
In May 1998, the Company paid a deposit to Sigma Finance Corporation in
connection with a nonbinding financing proposal for up to a $200 million
ten-year bond issue to be collateralized by all of the Company's assets. In
September 1998, the Board of Directors approved the preliminary requirements of
the proposed tentative financing arrangement and management was authorized to
take all necessary action to pursue and finalize the
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transaction if the opportunity arises. The significant terms approved by the
Board in anticipation of potential financing include an allowance for the lender
of a minimum of two seats on the Company's Board of Directors, the power of veto
over future capital expenditures and other significant matters, and issuance of
unrestricted shares of common stock equal to 20% of the Company's equity, with a
non-dilution agreement which would have the effect of maintaining the lenders
20% holding at no cost to the lender whatever additional issues of equity
capital was proposed or made during the life of the bond. In addition to legal
fees to effect the financing, the Company will be required to pay an origination
fee of 10% of the loan proceeds should the financing materialize. Neither Sigma
Finance Corporation nor any other person or entity is obligated to make an loan
or provide financing to the Company under any terms.
Should the Company be successful in obtaining substantial additional debt
financing, management plans to seek merger with or acquisitions of more mature
telecommunication or computer related businesses or other cash generating
enterprises that would generate sufficient cash flow to maintain debt service.
There can be no assurances that the Company will be successful in the
implementation of its plan for expansion and its overall business plan
Pending Acquisitions:
Currently there are no letters of intent or other formalized agreements to
acquire any entity or assets. The only acquisition which the Company has
accomplished to date is the purchase completed July 6, 1998, whereby AWN
purchased seven operating SMR systems for $3,035,697. from Centennial
Communications Corp.
Sale of LED Screen Assets:
On December 31, 1998 the Company disposed of six (6) giant light-emitting
diode (LED) screens by sale to Lanstar Computer Products, Inc., a Texas
Corporation, located in Dallas, Texas. The giant LED screens are used to provide
computer active light presentation programs, adaptable for indoor or outdoor use
for sporting events, advertising displays and other theatrical applications.
Pursuant to the Purchase Agreement entered into between the Company and Lanstar
Computer Products, Inc., the LED screens were sold to Lanstar Computer Products,
Inc. (which may be considered an affiliate of the Company) in exchange for a
Promissory Note payable to the Company in the amount of two million four hundred
thousand dollars ($2,400,000). The promissory note is to be secured by an
agreement utilizing the assets sold as security for the promissory note. The
entire principal of the promissory note is due December 31, 1999. The promissory
note, a general obligation of Lanstar Computer Products, Inc., bears simple
interest at the rate of eight percent (8%) per annum payable quarterly. The
Buyer, Lanstar Computer Products, Inc., is a Texas Corporation located at 13707
Gamma Road, Dallas, Texas 75244. Prior to this disposition, neither the Company,
nor any of its subsidiaries, directors, officers or persons associated with the
Company's officers and directors had any relationship with Lanstar Computer
Products, Inc. or any of its officers or directors. Lewis D. Rowe, who is not an
officer or director of the Company, but who is listed as an affiliate of the
Company in the Company's June 30, 1997 and 1998 Form 10KSB as a person known by
the Company to own beneficially more than 5% of the Company's .001 par value
common stock, may also be considered an to be an affiliate of Lanstar Computer
Products, Inc., a non-pubic company. The LED Screens had been on consignment for
sale since August 1998. No determination as to the collectability of the
promissory note has been made.
(b) Liquidity and Capital Resources
The Company reported a net loss (unaudited) of $758,775 for the six months
ended December 31, 1998 and has reported net losses from inception (March 15,
1994) to December 31, 1998 of $12,463,675. The Company had deficient working
capital at December 31, 1998 of $428,452. As of December 31, 1998, the Company
reported shareholder equity of $882,197. To date, these losses and cash flow
deficiencies have been financed principally through the sale of common stock and
warrants and issuance of short and long-term debt which includes related party
debt. Additional capital and/or borrowings will be necessary in order for the
Company to continue in existence until attaining profitable operations. Although
a portion of convertible debt was liquidated through the issuance of common
stock, no assurances can be given that the sources of borrowings would continue.
The Company is highly leveraged and a number of developments over the past
quarter had material adverse effects on the Company. The Company has a
significant investment in license rights obtained through the acquisition of
assets from Centennial Communications, Corp., the recoverability of which is
dependent upon the success of future events.
Management has continued to develop a strategic business plan to raise
private financing, develop a management team, maintain reporting compliance and
seek new expansive areas in telecommunications. In order to
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reduce negative cash flow the Company entered an agreement to sell its FCC
licenses to satisfy debt requirements and in a plan anticipated to generate cash
flows, has entered into an agreement to lease its SMR equipment.
From August 1, 1999 to the end of fiscal year ended June 30, 2000, the
Company estimates its cash needs to maintain operations under its current
negative cash flow situation is approximately $550,000. This amount is composed
of $550,000 for working capital assuming that current operations continue in its
present status. These amounts include offsets for anticipated amounts of cash
generated from operations, but does not consider possible proceeds from interest
income or sales of assets.
The Company has limited capitalization and is dependent on the proceeds of
private or public offerings to continue as a going concern and implementing a
business plan. As of December 31, 1998, the unaudited results of the Company
indicated deficit working capital of $428,452. All during fiscal 1998 and to the
date of this filing, the Company has had and continues to have a substantial
need for working capital for normal operating expenses associated with the
Company continuing as a going concern. This lack of cash has slowed its ability
to develop SMR assets and initiate revenue producing operations. Any activity in
the wireless industry requires adequate financing and on-going funding sources.
The Company has entered this industry with limited financing and funding
sources.
At December 31, 1998 (unaudited), the following contingent stock issue
requirements and warrants were outstanding:
- Shares reserved for the Company's incentive stock option plan (900,000)
- Shares reserved for issuance in accordance with outstanding warrants
issued June 30, 1997 (4,242,923) exercisable at $4.50 per share,
expiring June 30, 2000.
- Shares reserved for contingent issue with respect to outstanding
warrants exercisable at $2.90 per share associated with converted debt
and LED Screens (7,083,333), expiring in March 2001. Shares reserved
for contingent issue with respect to outstanding warrants exercisable
at $2.90 per share associated with converted debt related to the SMR
Asset purchase (17,600,000), expiring in March 2001.
- On February 16, 1998, the Company entered into a letter agreement with
the Company, which remains to be formalized, by which James Krejci
became employed as Chief Operations Officer of the Company and
President and CEO of AWN. The letter agreement calls for a three year
employment agreement with the opportunity for Mr. Krejci to obtain,
through common stock option agreements, up to ten percent (10%) of the
outstanding common stock of the Company over a three year period. The
preliminary agreement calls for Mr. Krejci to receive stock options
vesting in monthly increments to equal to a total of 5% of the Company's
outstanding common shares over a three year period. Options to obtain an
additional 5% of the Company's outstanding common shares are conditioned
upon the Company reaching certain financial and administrative goal
within established timelines. The strike price of all of the potential
options, as modified (reprised) by Board of Director action on October
7, 1998, is $.056 per share, representing 80% of the bid price of the
Company's common stock on September 2nd, 1998, (closing bid price
$.07) Mr. Krejci's actual appointment date as President and CEO of the
Company.
During quarter ended December 31, 1998, the Company continued as a
development stage enterprise. The Company's financial statements are therefore
not indicative of anticipated revenues which may be attained or expenditures
which may be incurred by the Company in future periods. The Company's ability to
achieve profitable operations is subject to the validity of its assumptions and
risk factors within the industry and pertaining to the Company.
As a result of the operation of SMR licenses and existing operations
purchased from Centennial Communications Corp., $54,640 of revenues were
generated from the Company's wireless business during the quarter ended December
31, 1998 as compared to $19,295 of revenues earned during the initial month of
operating the acquired business in the quarter ended December 31, 1997.
For the quarter ending December 31, 1998, the Company incurred General and
Administrative Expenses of $163,476, a decrease of $56,047 from the quarter
ending December 31, 1997, when the Company incurred General and Administrative
expenses of $219,523. Management has undertaken cost cutting measures in order
to reduce overhead and reoccurring costs. The overall reduction in expenses
reflects Management's efforts at bringing the Company's operating and
administrative costs under control. The Company's Quarter ended December 31,
1998
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financial statements reflect adjustments and nonrecurring items of both revenue
and costs, as well as development stage costs and are not indicative of
anticipated revenues which may be attained or expenditures which may be incurred
by the Company in future periods.
Part II
ITEM 1. LEGAL PROCEEDINGS
On September 14, 1998 the Company received by certified mail a Complaint
filed in Superior Court of California, County of San Diego, Case No. 723581
entitled John Brent, et al vs. ComTec International, Inc., a New Mexico
corporation, et al Defendants. The Complaint by seven named Plaintiffs alleges
securities fraud, improper sale of unregistered securities, and stock
manipulation against the Company and five individual defendants who were former
officers and/or directors of the Company, none of whom are currently associated
with the Company. The Company believes that it has meritorious defenses and will
vigorously defend against the allegations of the Complaint. Due to the
preliminary stage of the matter, further information is not available. The
Company filed its answer to Plaintiffs' Complaint on July 15, 1999. A motion to
dismiss Plaintiffs' complaint for failure to join indispensable parties
initiated by the Company is pending.
Litigation with Former Officer and Director
On February 1, 1999 Donald Mack, the former CEO, President and director of
ComTec International, Inc. filed a complaint in the District Court, City and
County of Denver, State of Colorado, Civil Action Number 99CV634, Courtroom 6,
against ComTec International, Inc. ("ComTec") as well as two individual
defendants, a current officer and a shareholder of ComTec. On March 24, 1999
ComTec filed its Answer and extensive Counterclaims against Donald Mack
("Mack"). Mack alleges that he is entitled to continued compensation and
benefits based upon a March 31, 1997 addendum to his December 26, 1995
employment contract (which expired in May of 1998). Mack further alleges that
although he resigned as an officer in June 1998, he was wrongfully induced to
resign. Mack alleges that he is due salary, car allowance, health plan payments,
life insurance payments, stock bonuses and other items from June 30, 1998
through June 30, 2002. ComTec's answer states that the March 31, 1997 addendum
is null and void as a matter of law, denies any wrongdoing or inducement and
denies any and all liability to Mack. ComTec's answer further states as
affirmative defenses that Mack's claims are barred by the doctrine of estoppel
and unclean hands, that the March 31, 1997 addendum was entered into under
circumstances of fraud and illegality, that Mack's claims are barred by failure
of consideration, fraud and illegality, waiver, failure to mitigate, that Mack's
alleged claims are setoff by the counterclaims of ComTec against Mack and that
Mack's alleged damages, if any, are the result of Mack's own actions. ComTec
believes it has meritorious and virtuous defenses and anticipates that it will
vigorously and effectively defend against any and all claims by Mack. The
Company filed a number of Counterclaims against Mack. Among the Counterclaim
allegations of ComTec against Mack are allegations that an agreement entered
into in May of 1995, whereby Mack gained control of ComTec through an agreement
for ComTec to purchase the assets of a corporation controlled by Mack, KeyStone
Holding Corporation, was entered into with intent to defraud ComTec and its
shareholders. Among other allegations, ComTec alleges that misrepresentations
and omissions of material fact were made by Mack prior to the Keystone
transaction, that Mack used ComTec as an instrumentality for his own personal
benefit and affairs, that Mack acted to conceal material facts regarding Mack's
ultra vires and unauthorized acts in the name of ComTec. ComTec further alleges
that Mack took unauthorized and unearned bonuses in stock of ComTec and cash,
that the execution of the employment addendum through which Mack is alleging
amounts are now due him from ComTec was accompanied by circumstances of fraud
and collusion, and that Mack made unauthorized use of ComTec's funds and
property. ComTec's claims against Mack include: intentional
misrepresentation/fraudulent inducement regarding the Keystone Transaction;
fraudulent concealment/constructive fraud; breach of warranty; breach of
fiduciary duty; conversion; fraudulent conveyance; civil theft pursuant to
C.R.S. Section 18-4-401 and 18-4-405 and securities fraud pursuant to C.R.S.
Section 11-51-501. ComTec seeks monetary damages and constructive trust as well
as Declaratory Judgment pursuant to C.R.C.P. 57. ComTec believes it has
meritorious claims and will resolutely pursue its claims against Mack. A trial
date of April 3, 2000 has been set for the matter.
Except for the foregoing, no litigation or other material legal
proceedings, to which the Company is a party or to which the property of the
Company is subject, is pending or is known by the Company to be contemplated.
ITEM 2. CHANGE IN SECURITIES. NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE
ITEM 5. OTHER INFORMATION. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) & (b) Financial Statements and Schedules. See Financial Statements beginning
on page 3.
(c) Exhibits. The following documents are filed herewith or incorporated herein
by reference as Exhibits:
Exhibits
- --------
2.1 N/A
3.0 Articles of Incorporation of the Company. (incorporated by reference to
Exhibit 3.1 to the Company's Form S-1 Registration Statement No.
82-88530 dated December 20, 1983). Amendment Incorporated by Reference
to Form 8-K dated May 12, 1997.
3.1 By-laws. (incorporated by reference to Exhibit 3.2 to the Company's
Form S-1 Registration Statement No. 82-88530 dated December 20, 1983
and Exhibit 3.2 to the Company's Form 10KSB for the period ended June
30, 1998).
4.0 Certificate of Designation of Series A Preferred Shares. (1)
4.1 Certificate of Designation of Series B Preferred Shares. (1)
4.2 Certificate of Designation of Series C Preferred Shares. (1)
10.01 Form of Employment Agreement between the Company and its former
officers. (1)
10.02 Letter Agreement between the Company and James J. Krejci. (2)(3)
11 Not Applicable.
15 Not Applicable.
18 Not applicable.
19 Not applicable.
22 Not Applicable.
23 Not Applicable.
24 Not applicable.
27 Financial Data Schedule
99 Not applicable
d) The Company filed the following reports on Form 8-K:
Current Report on Form 8-K was filed on October 9, 1998 to report the
appointment of an outside director. Current Report on Form 8-K was filed on
November 23, 1998 to report debt and equity securities issued pursuant to
Regulation S exceptions.
- -------------
(1) Incorporated by reference to the Company's Form 10-KSB as of June 30,
1996.
(2) Incorporated by reference to the Company's Form 10-KSB as of June 30,
1997.
(3) Incorporated by reference to the Company's Form 10-KSB as of June 30, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report signed on its
behalf by the Undersigned, thereunto duly authorized.
COMTEC INTERNATIONAL, INC.
Date: July 21, 1999 By: /s/ James J. Krejci
-------------------------
James J. Krejci, President and
Chief Executive Officer
By: /s Gordon Dihle
-------------------------
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 480,413
<SECURITIES> 0
<RECEIVABLES> 110,024
<ALLOWANCES> 28,900
<INVENTORY> 1,314,272
<CURRENT-ASSETS> 1,875,809
<PP&E> 1,356,622
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,628,802
<CURRENT-LIABILITIES> 2,304,261
<BONDS> 0
0
0
<COMMON> 44,313
<OTHER-SE> 837,884
<TOTAL-LIABILITY-AND-EQUITY> 4,628,802
<SALES> 135,594
<TOTAL-REVENUES> 135,594
<CGS> 105,290
<TOTAL-COSTS> 105,290
<OTHER-EXPENSES> 331,462
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (125,502)
<INCOME-PRETAX> (758,775)
<INCOME-TAX> 0
<INCOME-CONTINUING> (758,775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (758,775)
<EPS-BASIC> (.02)
<EPS-DILUTED> 0
</TABLE>
